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Investigating bankruptcy prediction models in the presence of extreme class imbalance and multiple stages of economy

arXiv.org Machine Learning

In the area of credit risk analytics, current Bankruptcy Prediction Models (BPMs) struggle with (a) the availability of comprehensive and real-world data sets and (b) the presence of extreme class imbalance in the data (i.e., very few samples for the minority class) that degrades the performance of the prediction model. Moreover, little research has compared the relative performance of well-known BPM's on public datasets addressing the class imbalance problem. In this work, we apply eight classes of well-known BPMs, as suggested by a review of decades of literature, on a new public dataset named Freddie Mac Single-Family Loan-Level Dataset with resampling (i.e., adding synthetic minority samples) of the minority class to tackle class imbalance. Additionally, we apply some recent AI techniques (e.g., tree-based ensemble techniques) that demonstrate potentially better results on models trained with resampled data. In addition, from the analysis of 19 years (1999-2017) of data, we discover that models behave differently when presented with sudden changes in the economy (e.g., a global financial crisis) resulting in abrupt fluctuations in the national default rate. In summary, this study should aid practitioners/researchers in determining the appropriate model with respect to data that contains a class imbalance and various economic stages.



Deep Learning for Financial Applications : A Survey

arXiv.org Machine Learning

Computational intelligence in finance has been a very popular topic for both academia and financial industry in the last few decades. Numerous studies have been published resulting in various models. Meanwhile, within the Machine Learning (ML) field, Deep Learning (DL) started getting a lot of attention recently, mostly due to its outperformance over the classical models. Lots of different implementations of DL exist today, and the broad interest is continuing. Finance is one particular area where DL models started getting traction, however, the playfield is wide open, a lot of research opportunities still exist. In this paper, we tried to provide a state-of-the-art snapshot of the developed DL models for financial applications, as of today. We not only categorized the works according to their intended subfield in finance but also analyzed them based on their DL models. In addition, we also aimed at identifying possible future implementations and highlighted the pathway for the ongoing research within the field.


Interpreting Neural Network Judgments via Minimal, Stable, and Symbolic Corrections

arXiv.org Machine Learning

The paper describes a new algorithm to generate minimal, stable, and symbolic corrections to an input that will cause a neural network with ReLU neurons to change its output. We argue that such a correction is a useful way to provide feedback to a user when the neural network produces an output that is different from a desired output. Our algorithm generates such a correction by solving a series of linear constraint satisfaction problems. The technique is evaluated on a neural network that has been trained to predict whether an applicant will pay a mortgage.


Designing Quality into Expert Systems: A Case Study in Automated Insurance Underwriting

AAAI Conferences

It can be difficult to design and develop artificial intelligence systems to meet specific quality standards. Often, AI systems are designed to be "as good as possible" rather than meeting particular targets. Using the Design for Six Sigma quality methodology, an automated insurance underwriting expert system was designed, developed, and fielded. Using this methodology resulted in meeting the high quality expectations required for deployment.